The most critical time of the corn growing season is upon us. We started the year saying there was no room for yields to be below 176 bushels per acre. That might have changed a little since USDA reduced demand, and political and economic headwinds with China seem hard to avoid without additional crop losses in the world.
The last USDA report estimated yield at 177 bpa and end stocks at 1.47 billion bushels. That leaves the industry with 320 million bushels above pipeline requirements. That equates to 3.9 bpa nationally as a buffer before identifiable rationing would be needed.
Factors could lead to rationing
Current forecast suggests jet streams moving back over the Rockies and a reprieve from heat and possible showers to return to the Corn Belt at peak pollination. This would provide favorable crop conditions, yet we still need to admit that some damage to early crops from Kentucky to Nebraska have already occurred.
It is likely that the best case scenario is a 175-177 bpa yield. If next week’s rains are disappointing, best case scenario yield would remain in the 172-177 bpa range.
If we call it 174.5 bpa right now, end stocks project to 1.265 billion bushels. This would not require rationing unless another production area fell short and pushed demand toward the U.S.
With the E.U. experiencing record temps, prices should be well supported until the market can determine the outcome of European crops and how/if demand is forced to seek U.S. supplies.
Thus, until we know more information, there is no real reason to think futures will need to trade above $7.00, nor a reason to trade below $5.00.
If yields were to fall below 173 bpa, or if the E.U. lost 15 mmt or more of corn production, then traders would likely need to move prices to a rationing price level. Determining that price will depend on many things. For example, the dollar value and if the hedge funds are putting the inflation hedge back on, just to mention a couple of factors.
If rationing is not required, then the deflationary fed policy that is driving traders away from the inflation-based food and fuel hedge will likely cause price disappointment for those who have not sold.
Time to sell?
To disclose our recommendations, our clients have been advised to sell 60% as the market rallied and we bought calls to protect the top end of the market. We believe that to answer the question the producer is asking is to get out a calculator:
Estimated yield X Fall price = Y revenue
Y – cost of production = Net Gross Revenue (NGR)
If NGR is acceptable, then sell. You can always manage an extreme move with an option. Concentrate on managing your business right now.
The time has come. The RISK of production that drives price is coming to an end as we enter peak pollination season. So, if you have not sold, get out your calculator.
Source - https://www.farmprogress.com
